What does “owner readiness” look like in the next decade? What are the trends associated with business succession and exit planning? When is a good time to sell a business, and how does the M&A market look in the future? What do I need to do to improve my business, and why is it so important to sell sooner rather than later?
At Viking Mergers & Acquisitions, business owners ask us these questions all the time. Successful business transitions fuel our economy, so it’s essential to know the complexity associated with selling your business.
Over the next 10 to 15 years, we will see an unprecedented amount of business transitions as the baby boomer generation prepares for retirement, and the younger generation moves in. Some call this the Silver Tsunami. We call it opportunity. What will this new wave of business transition look like?
What to Expect
According to the Exit Planning Institute, if you remove the single shingles (<5 person businesses), there are roughly six million privately held companies operating in the United States. U.S. census data tells us that 63% of these companies are owned by millions of baby boomers who are turning 70 at a rate of 10,000/day through 2034.
The recent COVID-19 Pandemic, in my opinion, was a wakeup call for many. Boomers realized being at home wasn’t too bad. And, that life is too short to work until the very end. They also learned that unexpected disaster could severely impact the value of their business.
We can expect business acquisitions to grow in the next decade along with demand for intermediaries/advisors like us here at Viking. Almost all business owners who fall into this category have most of their assets positioned in the business itself. What does this mean? Now is the essential time to consider selling or at least compose a plan if you are retiring within the next ten years.
How to Prepare
So, what is needed for you to sell your business correctly? In a word, preparation.
To secure the highest price for the business you worked so hard to grow and maintain, you must prepare well. Excellent preparation requires a stellar team of trusted advisors who can lead you through the process of readying your exit. Your success advisors will ensure that you maximize your transferrable business value while planning for a financially comfortable lifestyle.
Business owners must think about their future and the future of their families after the sale is complete. A trusted board of business succession advisors can assist you in planning for the purchase of your company and how you will handle the transition.
Working closely with your accountant, financial planner, attorney, and trusted business intermediary while having policies and procedures in place can significantly improve the chances of selling your business compared to going at it alone. Not only can they make it easier, but they can also help secure the highest price possible.
We like to compare a team of trusted advisors to an orchestra. A conductor cannot direct the orchestra without the right musicians to play the instruments. Likewise, one missing advisor or step of preparation could influence the failure of the deal. But together, the transition finds success!
What We Recommend
First, we recommend establishing consistent accounting practices to maximize shareholder wealth, similar to public companies. Why? Because every dollar you think you are saving in taxes may cost you exponentially in business value. Preparing your business for a sale now could help reduce tax consequences down the road.
Second, we recommend developing an organizational chart, job descriptions, and an employee handbook that documents benefits, vacation, and sick days. These tools prove invaluable to a new owner and demonstrate that you spent some time working on the business and not just in it.
Finally, know your why! Do you have your vision, mission and core values written? Do these legacy statements drive your decision to hire and fire?
There are many other considerations, like do you have contracts, leases, and transferable agreements? But this is a start.
Pitfalls to Dodge: Selling too late. Too often, a business owner will decide to sell their business when it is too late, to the point where it is not sellable. Timing is crucial. It would be best if you thought about solidifying your retirement and leaving a financial legacy for your family now. You need to think about what you are retiring to, not from.
Founder’s Syndrome. Business owners can often allow the business to define his/her identity. Don’t break the key off in the door on the way out as you drive your business into the ground and have nothing to sell. You want to sell when things are going well. As soon as the business starts declining due to your loss of ability to run the company, the buyers and banks will wonderwhere the bottom is and won’t want to pay full price.·
Losing Equity. A business owner should consider their business an investment; just like stocks, bonds, and mutual funds. Transitioning equity into cash at the right time with the right advisor’s help can make a tremendous difference.
Most business owners are so busy in the day-to-day duties of the business that they do not think about the importance of selling. The fact of the matter is, selling now could significantly improve your chances of being financially stable in the future.
If you’re approaching the retirement mark and feel that it might be the best time to find a successor for your business, you’re not alone. There are millions of business owners just like you who are seeking advice to prepare adequately. We can help you prepare for the most important transaction to secure your future.
Contact us today for a free valuation and consultation.